Antitrust Cry From Microsoft

STEVE LOHR

Thursday

Mar 31, 2011 at 4:19 AM

Microsoft is joining a chorus of complaints saying that Google’s search engine unfairly promotes its own products, like Google Product Search.

The wheel of technology history turns remarkably fast. Microsoft, whose domination of the technology industry provoked a landmark federal antitrust case, is crying foul against Google and urging European Union antitrust officials to go after the search giant.

Microsoft plans to file a formal antitrust complaint on Thursday in Brussels against Google, its first against another company. Microsoft hopes that the action may prod officials in Europe to take action and that the evidence gathered may also lead officials in the United States to do the same.

In Europe, Microsoft is joining a chorus of complaints, but until now they have come mainly from small Internet companies saying that Google’s search engine unfairly promotes its own products, like Google Product Search, a price comparison site, over rival offerings.

The Internet and smartphones are the markets where energy, investment and soaring stock prices reside. Microsoft, still immensely wealthy, is pouring billions into these fast-growing fields, especially Internet search. Yet the champion of the PC era trails well behind Google.

“The company that was the 800-pound gorilla is now resorting to antitrust, where it is always the case that the also-rans sue the winners,” said Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management who has studied Microsoft.

The Microsoft complaint, Professor Cusumano notes, is also a reminder of the comparative speed with which fortunes can shift in fast-moving technology markets. “It doesn’t happen instantly, but it does happen faster than in most industries,” Professor Cusumano said. “It took Google about a decade to really turn the tables on Microsoft.”

For years, the swaggering giant of personal computer software battled competitors and antitrust regulators in America and abroad, parrying their claims that it had bullied rivals and abused its market muscle. In the United States, it suffered rulings against it and in 2001 reached a settlement that prohibited Microsoft from certain strong-arm tactics. In Europe, Microsoft absorbed setbacks and record fines from regulators and judges.

Still, irony has no place in antitrust doctrine. Microsoft’s complaint must be weighed on the merits, as part of a wide-ranging antitrust investigation of Google, begun last year and led by Europe’s competition commissioner, Joaquín Almunia.

The litany of particulars in Microsoft’s complaint, the company’s lawyers say, includes claims of anticompetitive practices by Google in search, online advertising and smartphone software. But a central theme, Microsoft says, is that Google unfairly hinders the ability of search competitors — and Microsoft’s Bing is almost the only one left — from examining and indexing information that Google controls, like its big video service YouTube.

When told of the Microsoft claims, Adam Kovacevich, a Google spokesman, denied that the company had done anything wrong and said its practices did not deny Microsoft access to Google technology and content.

Though it is making an antitrust claim, Microsoft is also claiming a bit of hypocrisy on Google’s part. In an interview, Bradford L. Smith, Microsoft’s general counsel, cited Google’s stated mission to “organize the world’s information and make it universally accessible and useful.”

“That is a laudable goal,” Mr. Smith said. “But it appears Google’s practice is to prevent others from doing the same thing. That is unlawful and it raises serious antitrust issues.”

Google’s strategy, he adds, seems to be to “wall off content so that it cannot be crawled and searched by competing companies.”

In smartphones — sources of increasing volumes of search traffic — Microsoft says Google is withholding technical information needed to let phones using Windows Phone 7 software have a rich, full-featured application for YouTube. That technical information, Microsoft says, is available not only in Google’s Android software but also Apple iPhones, as part of a deal dating back to when Google’s chief executive, Eric E. Schmidt, was on the Apple board. (He resigned in 2009, after the Federal Trade Commission raised questions about the arrangement.)

Mr. Kovacevich said that about two years ago, the company decided to make an improved version of YouTube available for all mobile devices instead of tailoring it to each company on smartphone applications, as it did earlier with Apple.

Microsoft also contends that Google has set up what amount to technical roadblocks so that Microsoft’s Bing search service cannot examine and index up to half of the videos on YouTube.

Another Microsoft claim focuses on Google’s ad contracts. Its contracts prohibit advertisers and online agencies from using third-party software that could instantly compare results and move advertisers’ data from one ad platform to another — from Google’s Adwords to Microsoft’s Adcenter, for example.

The Google spokesman said the company does allow advertisers freedom to move data freely, and the restraint on third-party software is to maintain the consistency of Google’s ad service.

Microsoft sees current cases involving Google in the United States through a similar prism. In rejecting Google’s settlement with groups representing authors and publishers last week, a judge in Federal District Court in New York said the plan to scan and digitize millions of books raised antitrust concerns.

The settlement, wrote Judge Denny Chin, would “arguably give Google control over the search market.” Later in his ruling, the judge wrote, “Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market.”

The Justice Department is reviewing Google’s planned $700 million purchase of ITA, an airline flight information software company. Microsoft’s Bing, along with specialized travel Web sites like Hotwire, Kayak and Orbitz, use ITA’s data. And Microsoft and others have urged the Justice Department to make approval of the deal dependent on Google’s allowing others continuing access to the data, on terms similar to those before the acquisition.

Google has pledged to do that, Mr. Kovacevich said.

The Justice Department has stepped in twice to challenge Google — on the proposed Yahoo deal in 2008 and in opposing Google’s book deal last year.

Microsoft has urged regulators and Congress to curb Google in the past, including Microsoft’s public opposition to Google’s bid for Yahoo and its successful acquisition of DoubleClick, an online advertising specialist, for $3.1 billion in 2008.

Microsoft, Mr. Smith said, is filing its complaint in Europe partly because it has an overall antitrust investigation of Google under way. In Washington, antitrust reviews of Google have focused on individual business deals rather than a pattern of conduct. (The Texas attorney general’s office is also conducting an antitrust investigation of Google. Other states have also shown interest.)

But Mr. Smith noted that Google’s market share in search in Europe is higher than in the United States — more than 90 percent in most nations in the European Union, compared with 65 percent in the United States. “The search market in Europe is substantially less competitive than it is in the U.S.,” Mr. Smith said.

Microsoft, he added, plans to make sizable investments and efforts in the European market. “But if we’re going to get a more competitive market there, European regulators are also going to have to take steps to establish a level playing field.”

Google’s large market share in search, legal experts say, does invite antitrust scrutiny. If Microsoft’s claims are accurate, they could raise issues for Google, especially in Europe, where antitrust regulators tend to move more quickly to restrain the behavior of dominant companies.

Still, antitrust regulators look for evidence of not only an unfair advantage but also of less consumer choice and higher prices.

“You do need to show consumer harm,” said Herbert Hovenkamp, an antitrust expert at the University of Iowa College of Law. “That becomes more difficult with search engines, where it is easy for consumers to switch to another search engine. That is different than in PC operating systems in the Microsoft case, where the technological lock-in was more obvious.”

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